Arbitration is a legal arrangement whereby both parties to a civil (commercial) dispute reach an agreement to voluntarily submit the case to a third party to adjudicate in accordance with specified procedures and rules and following the principle of impartiality, and whereby both parties are bound to enforce the ruling.

Arbitration is usually a non-governmental trade activity; it represents a private action. Together with composition, mediation and action, it is a common way to settle civil (commercial) disputes. Arbitration, however, is subject to state supervision. The State intervenes through courts in accordance with legal provisions of the place where the arbitration takes place in the validity of the arbitration award, the making of arbitration procedures, the enforcement of awards and in the case of involuntary enforcement by a party. Arbitration, therefore, is a judicial activity and a part of China's judicial regime.

The Arbitration Law of the People's Republic of China, promulgated on August 31, 1994, unified arbitration practices across the country and harmonizes China's arbitration system with internationally accepted principles, systems and practices.

Basic Principles

1. Voluntarism:

Parties to a dispute should voluntarily reach an agreement to resolve their dispute through arbitration. An arbitration committee shall not consider a case without application from a party to the agreement.

2. Independence:

Arbitration should be independent of any interference from administrative bodies, social organizations or individuals.

· An arbitration agency is not part of the administrative apparatus.

· Arbitration institutions are established geographically, independent from each other; they have no affiliation among themselves.

· Arbitration committees, arbitration associations and arbitration tribunals are also independent from each other, with arbitration tribunals adjudicating cases free from interference by arbitration associations or arbitration committees.

· Courts must exercise the power of supervision over arbitration activities; however, arbitration is not dependent on adjudication and arbitration institutions are not dependent on courts.

3. Legality and Impartiality:

The Arbitration Law provides that arbitration should be based on facts, comply with laws and resolve disputes in an impartial and reasonable manner.

Arbitration Bodies

1. Arbitration Association

China Arbitration Association is a self-disciplinary organization of arbiters. It supervises arbitration committees and their members and the behaviors of arbiters in accordance with their constitution. Arbitration committees are members of the China Arbitration Association. The constitution of the association is made by a national congress. It makes arbitration rules in accordance with the Arbitration Law and the Civil Procedure Law.

2. Arbitration Committees

Arbitration committees are executive bodies established in capital cities of provinces, municipalities and autonomous regions. They can also be set up in other cities if necessary.

Arbitration committees are formed with members from government departments and chambers of commerce and registered with the judicial administration of the province (municipality, autonomous region).

An arbitration committee consists of one chairman, two-to-four vice chairmen, and seven to 11 members. The chairman, vice chairmen and members should be legal and trade experts and individuals with working experience. The number of legal and trade experts should not be less than one third of the membership of an arbitration committee.

Arbiters should meet the following qualifications:

· Eight full years in the arbitration field;

· Eight full years in the legal profession;

· Eight full years as judge;

· Specialized in legal research and teaching and holding a senior professional title;

· Familiar with legal knowledge, specializing in economic and trade activities and holding a senior professional title or with equivalent qualifications.

An arbitration committee has different panels of arbiters for different trades.

3. Arbitration Tribunals

After taking up an arbitration case, an arbitration committee does not directly arbitrate the case; instead, it forms an arbitration tribunal to adjudicate the case.

Organizationally, an arbitration tribunal can be a collegiate panel or a sole arbitrator. An arbitration panel should be composed of three arbiters, one of whom should the chief arbiter who presides over the arbitration.

In case the parties agree to form a tribunal of three arbiters, each party should designate, or ask an arbitration committee to designate, one arbiter, and the third arbiter, who should be jointly selected by the parties or designated by the arbitration committee chairman jointly authorized by the parties, should be the chief arbiter. In case the parties agree to form a sole-arbiter tribunal, the arbiter should be jointly selected by the parties or designated by the arbitration committee chairman jointly authorized by the parties.

Essential Components of Arbitration

1. Arbitration or Adjudication

This practice represents a respect for the parties' right of choice as to the way to settle their dispute. It means:

If the parties have reached an agreement on arbitration, it rules out the jurisdiction of the court over the dispute; the parties can only apply for arbitration to an arbitration body rather than bringing action to the court.

However, courts may have jurisdiction over disputes that the parties have already signed an agreement about under special circumstances. These include:

· The arbitration agreement is invalid or its validity has expired;

· One party brings a suit to the court and the other party answers the lawsuit and mounts a substantial defense that does not challenge the jurisdiction of the court over the dispute. In such cases, the parties are understood to have renounced the original arbitration agreement and the court has judicial power to adjudicate the case.

2. One Instance Being Final

This means that the ruling takes effect immediately upon pronunciation. Even if the parties are not happy with the ruling, they cannot file a suit to the court for the same dispute or apply for arbitration or reconsideration to arbitration organizations. Instead, they should automatically implement the ruling; otherwise the other party has the right to apply to the court for enforcement.

As a remedy to the one-instance-being-final practice, however, parties may apply to the court for a review and verification of the case and annulment of the arbitration ruling if they believe it is indeed wrong and conditions for a legal revocation have been met.

China International Economic and Trade Arbitration Committee

The China International Economic and Trade Arbitration Committee is the only arbitration agency in China that handles international economic and trade disputes. It is headquartered in Beijing, with branch offices in Shenzhen and Shanghai.